MUMBAI, Jan 15 (Reuters) - The Indian rupee weakened on
Tuesday, hurt by dollar demand from oil firms and companies, but
demand for the local currency from custodian banks prevented a
sharper slide.

However, onshore forward premiums rose after the central
bank said it would start a special window to provide exporters
dollar credit.

The rupee has gained 0.7 percent so far this year despite
concerns about India's current account and fiscal deficits, on
expectations for interest rate cuts and continued economic
reforms from the government.

Foreign investors have remained buyers of Indian equities,
spurring Macquarie and Westpac this week to become the latest
foreign banks to recommend shorting the USD/INR pair on
expectations of further gains in the rupee.

"We acknowledge India's lingering longer term risks from the
twin fiscal and current account deficit," Macquarie said in a
note on Tuesday.

"But for the short term, we are of the view that the rupee
could benefit from the reform measures and a strong demand for
EM equities, even as direct investment inflows begin to
rebound," it added, referring to emerging markets.

The partially convertible rupee closed at
54.6150/6250 per dollar versus its previous close of
54.4950/5050.

Oil firms, the biggest buyers of dollars in the domestic
currency market, were seen purchasing the greenback through the
day, dealers said.

Gains in domestic shares, however, helped sentiment for the
rupee while dollar sales by custodian banks also aided.

However, the three-month onshore forward premium
rose to 98 points from 94.75 at previous close, the six-month
was at 183.75 from 177.50 on Monday while the one-year
climbed to 333.50 points from 323.25 previously.

Analysts said the RBI's decision on Monday to open a special
window to provide exporters with dollar credit could have been
done in anticipation of dollar shortages, especially starting in
late February when the United States is expected to hit its debt
ceiling limit.

In the offshore non-deliverable forwards, the
one-month contract was at 54.90 while the three-month was at
55.45.

In the currency futures market, the most-traded near-month
dollar/rupee contracts on the National Stock Exchange, the
MCX-SX and the United Stock Exchange were all around 54.71 with
a total traded volume of $4.97 billion rupees.
(Editing by Anand Basu)

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